$CAT bulls nail big gains overnight

Caterpillar’s surprise earnings report this morning translated into exponential gains for upside option positions.

Just yesterday, Investitute’s tracking systems found that 3,100 Weekly $132 calls expiring this Friday were purchased for $1.80 to $2.40 with shares at $131.65. Volume was well above the strike’s open interest of 2,062 contracts, indicating that this was fresh buying.

Those calls traded for $8.55 as the market opened this morning, more than 4 times their original purchase price. The stock was up 6.1 percent at the same time, showing how quickly options can far outpace gains in their underlying shares.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

CAT jumped 4.98 percent to $138.24 today. The construction-equipment manufacturer beat quarterly estimates and raised its outlook this morning.